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Recent Topicals

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Focus of the Week: Cost of Living

May 21, 2017

The Economic Survey 2017, published annually by the Kenya National Bureau of Statistics, revealed that GDP is estimated to have grown by 5.8% in 2016 from 5.7% in 2015; this was in line with our expectation of a band of 5.7% - 6.0%. In order to assess the cost of living, we have picked two components of GDP, agriculture and financial intermediation, because (i) food is a big component of the Consumer Price Index (CPI) and a necessity that is produced through agricultural activities, hence knowing how the agriculture sector performed will give us insight on food supply and prices, and (ii) knowing about the growth of money supply in the economy and credit accessibility to households will give us an indication of household income and whether they can easily subsidize this with credit when the need arises. Agriculture’s contribution to GDP declined by 0.4% to 21.8% and its weighted y/y growth rate slowed down to 4.0% from 5.5% in 2015. This was attributed t...

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State of Interest Rate Caps

May 14, 2017

The Banking (Amendment) Act 2015 has drawn both plaudits and critics since its introduction in Q3’2016. The amendment stipulates a deposit and loan pricing framework, with (i) a cap on lending rates at 4.0% above the Central Bank Rate (CBR), and (ii) a floor on the deposit rates at 70% of the CBR. There was a mixed view on the impact of capping interest rates, with some looking at it as being able to make loans accessible to most Kenyans, while others viewed the introduction of the rate cap as being detrimental to the economy. We wrote severally on the matter, and also an article summarizing our view at the time: Interest Rates Cap is the Kenya’s Brexit – Popular but Unwise. Now that it is months after the law came into effect, we have seen some activity aimed at looking at the impact that the capping of interest rates has had so far on the economy. In January 20...

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Focus of the Week: Off Plan Investment in Real Estate - What a Buyer Needs to Know

Apr 16, 2017

Over the last couple of weeks, we have witnessed a number of property buyers coming to the fore claiming to have been swindled by developers over off plan real estate purchases. This week we thus seek to demystify off plan investment in real estate. We start by introducing off plan investments in real estate, the processes involved, the potential gains and risks. We then cover briefly the two most recent cases in the dailies of Simple Homes and Gakuyo, and conclude by advising buyers on what they should look out for when purchasing property off plan. Introduction Off plan investment refers to the purchase of property before completion, generally driven by the high price of real estate and the long time taken to deliver units, given low supply of real estate units despite the increasing prices. The buyer hence buys the property off the plan or design stage of the development. It has become increasingly popular as the prices of the prope...

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The Impact of the Ongoing Drought on the Kenyan Economy

Feb 26, 2017

The government has declared drought a national disaster, appealing for aid through the National Drought Emergency Fund, in a bid to mitigate the effects of the ongoing drought that has seriously affected different parts of the country. The number of people in need of food assistance has more than doubled to 3.0 mn in February 2017, from the 1.3 mn in August 2016, according to the National Drought Management Authority (NDMA), highlighting the magnitude of the crisis. This write up aims to analyse the potential effects of the drought on the economy. Kenya is generally a highly drought prone country with only 20.0% of the country receiving high and regular rainfall, with the remaining 80.0% being arid or semi-arid.  Previously, the country has experienced severe droughts over the past 10 years, most notably, (i) in 2011, when  the United Nations (UN) termed the drought that had hit parts of the Horn of Africa, as the worst in 60 years, with 13.2 mn Kenyans affected, e...

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Probable Direction of Kenya Equities Market in 2017

Jan 22, 2017

In our topical “Probable Direction of Equities Market in 2016”, we analyzed the trend in the local equities market and the factors that determine the stock market performance in an effort to forecast the direction of the equities market. The Kenyan Equities market saw a year of poor performance in 2016 with NASI, NSE 20 and NSE 25 losing 8.5%, 21.1% and 15.8%, respectively. So far the market has continued with its downward trend with NASI, NSE 20 and NSE 25 having lost 7.0%, 8.5% and 8.5%, respectively on a year to date. Since the inception of the all share index in 2008, valuations, as measured by price to earnings ratio (“PE”), have peaked twice; once in August 2010 and the other in February 2015. Since the August 2010 peak of 19.6x, prices went on a downward spiral for 16-months to hit a low of 8.3x in December 2011, registering an annualized loss of 47.5% over the 16-month decline period. The market then picked up with prices rising for a period of 38-month...

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